Am I big enough for a captive?
There is no correct answer to this question. Typically, companies with insurance premium spends of over GBP1M tend to work best for a captive and over GBP500K for Protected Cell Companies, however this is purely a rule of thumb.
We do see enquiries from companies with lower premium spends, especially where they have difficulty placing risks or where no commercial market solution is available, and they wish to incubate the risk
How much capital does the captive require and what are the running costs?
The amount of initial capital required very much depends on the type and size of risk that is retained by the Captive. The regulatory regime adopts a risk-based capital approach which for a pure captive (only insuring risks of the parent) is proportionate in nature.
Again, running costs very much depend on the size and complexity of the captive. The typical costs will include insurance manager fees, audit fees & director fees
Fees for Protected Cells tend to be lower than stand-alone captives.
What policies can a captive write?
On the presumption that the captive has obtained the appropriate regulatory license there is significant scope and flexibility. It can write most risks (conventional or non-conventional) subject to shareholder risk appetite. The important qualification is cover must be commercially reasonable, but it doesn’t have to be commercially available. It is common to see captives used as “incubators” in this regard. A business may have a specific risk that is either unique to the market or not common enough for the market to have enough experience with the risk to be comfortable underwriting it. In this common occurrence, self-insurance is the only option a business has unless that business operates a captive
How long does it take to set up a captive and how do I exit?
The bulk of the work in forming a captive is the submission and approval of a regulatory application. This requires a three year business plan and lays out key features such as cover types, premiums, risk retention, reinsurance, cash flow and claims expectations. The Fitness and Propriety (‘F&P’) Assessments are thorough and are best started early. Typical formation timeframes range from two to three months depending on complexity.
How much time is required of parent/shareholder?
This is very much at the discretion of the parent and/or shareholder, however the appointment of a professional insurance management company will ensure that all day to day operations of the captive are attended to.
What type of captives are available?
There are a variety of captive insurance vehicles, however the two main solutions are a Single Parent Captive (also known as a pure captive) and Protected Cell Captives. Other options available include Association Captives, Industry Captives and Rent-a-Captives.
Who regulates the captive and what laws and regs are applicable
Isle of Man authorised insurance entities, including aptives, are regulated by the Isle of Man Financial Services Authority (“FSA”) under the Insurance Act 2008 and Insurance Regulations. The FSA recognises the importance of captives and have included a specific captive class of insurance licence, which allows for appropriate levels of solvency, capital and corporate governance.
What are the tax implications of owning a captive?
There is a 0% corporate tax regime in the Isle of Man, subject to Income Tax (Substance Requirements) Order, therefore 0% tax is paid. However, as a captive shareholder your jurisdiction’s tax rules and regulations may affect the location and amount of tax, specifically related to a captive, for your group as a whole.